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BackThe heads of state and government of the twenty most powerful industrial and threshold countries met from 5 to 6 September 2013 in St Petersburg. Their discussions focussed among other on approaches of international cooperation in the area of tax policy. The contextual framework of the discussions was the OECD Action Plan on “Base Erosion and Profit Shifting” (BEPS). OECD Secretary General Ángel Gurría had already discussed the issue with Finance Ministers and Central Bank Governors of the G20 countries at the end of July. Agreement was reached eventually to implement an automatic exchange of information in tax matters. Does this mean that substantial progress has indeed been made in the fight for global tax justice?
Base Erosion and Profit Shifting (BEPS)
Systematic tax avoidance strategies by transnational corporations lead to significant difficulties for national economies. Companies skilfully exploit different tax systems to ensure that they only have to pay a small share of their profits to the treasury. Having installed two subsidiaries in low-tax Ireland, Apple for example pays only a small amount of tax on its profits generated outside the US. “BEPS” is the name for these processes and the structural problems resulting from these for national states.
The bottom line of the counter strategies envisaged in the OECD Action Plan is the taxation of profits in the country, where they have been generated. As not least confirmed by the OECD, aggressive tax planning by transnationally operating corporations also promotes tax competition between countries. Improved international cooperation shall be a helpful tool to counteract this development.
Automatic exchange of information
Analysis and reform proposals of the OECD were judged as being useful at the G20 summit in St. Petersburg and the Action Plan itself was included in the final declaration. Of course, this is less an actual voluntary commitment of the G20 countries than an ambitious declaration of intent. Applying caution and diplomacy as usual, one affirms the necessity of the fight against BEPS and in particular against tax avoidance.
The only more specific result in the fight for fairer taxation is the joint demand for an automatic exchange of information in tax matters. However, what kind of data this proposal is actually addressing, was officially not specified in more detail. Nevertheless, all technical issues have to be clarified by mid-2014 so that the actual implementation of a negotiated model of the automatic exchange of information can take place on 1.1.2015. The central idea is the improved cooperation between national authorities to be able to close loopholes for companies.
Competition and national sovereignty
The deliberations in respect of the OECD Action Plans are aimed at restructuring the national scope of action in matters of fiscal policy through international cooperation. States shall develop their regulatory powers and in doing so increase their own financial resources. The final declaration of the G20 also includes a passage with regard to taking the interest of developing countries in these global tax policy matters into account. The automatic exchange of information shall provide them with improved opportunities to consolidate their financially stricken situation.
In addition, the G20 countries share the view that by adopting their largely legal practices concerning tax avoidance, transnationally action corporations gain competitive advantages, which have a competition distorting impact.
Formal declarations vs. real policy implementation
From a general point of view, the intention of the G20 to improve its support for global tax justice is extremely important. More money would be available, in particular in times of crises, for urgently required public investments and for financing health, social and education systems. The key question will of course be how to specifically implement the OECD Action Plan against BEPS. In view of the concrete proposal in respect of an automatic exchange of information it is above all important to determine, what kind of data will be subject to it and how this data will be used later. After all, the institutionalised communication between national authorities does not mean that tax loopholes will be actually closed. Apart from that, it has not been possible to agree any other specific targets apart from the exchange of information.
There is often a substantial discrepancy between G20 final declarations and their concrete pragmatic effects. After all, it was at the G20 summit 2009 in London, when the global end of bank secrecy and thereby of tax oases was announced - four years later and political reality has still not caught up with this intention. Hence, it remains in particular to be seen whether and how the global automatic exchange of information - as the only agreed maxim - will actually be implemented.
Further information:
OECD - BEPS
G20 Final Declaration
Systematic tax avoidance strategies by transnational corporations lead to significant difficulties for national economies. Companies skilfully exploit different tax systems to ensure that they only have to pay a small share of their profits to the treasury. Having installed two subsidiaries in low-tax Ireland, Apple for example pays only a small amount of tax on its profits generated outside the US. “BEPS” is the name for these processes and the structural problems resulting from these for national states.
The bottom line of the counter strategies envisaged in the OECD Action Plan is the taxation of profits in the country, where they have been generated. As not least confirmed by the OECD, aggressive tax planning by transnationally operating corporations also promotes tax competition between countries. Improved international cooperation shall be a helpful tool to counteract this development.
Automatic exchange of information
Analysis and reform proposals of the OECD were judged as being useful at the G20 summit in St. Petersburg and the Action Plan itself was included in the final declaration. Of course, this is less an actual voluntary commitment of the G20 countries than an ambitious declaration of intent. Applying caution and diplomacy as usual, one affirms the necessity of the fight against BEPS and in particular against tax avoidance.
The only more specific result in the fight for fairer taxation is the joint demand for an automatic exchange of information in tax matters. However, what kind of data this proposal is actually addressing, was officially not specified in more detail. Nevertheless, all technical issues have to be clarified by mid-2014 so that the actual implementation of a negotiated model of the automatic exchange of information can take place on 1.1.2015. The central idea is the improved cooperation between national authorities to be able to close loopholes for companies.
Competition and national sovereignty
The deliberations in respect of the OECD Action Plans are aimed at restructuring the national scope of action in matters of fiscal policy through international cooperation. States shall develop their regulatory powers and in doing so increase their own financial resources. The final declaration of the G20 also includes a passage with regard to taking the interest of developing countries in these global tax policy matters into account. The automatic exchange of information shall provide them with improved opportunities to consolidate their financially stricken situation.
In addition, the G20 countries share the view that by adopting their largely legal practices concerning tax avoidance, transnationally action corporations gain competitive advantages, which have a competition distorting impact.
Formal declarations vs. real policy implementation
From a general point of view, the intention of the G20 to improve its support for global tax justice is extremely important. More money would be available, in particular in times of crises, for urgently required public investments and for financing health, social and education systems. The key question will of course be how to specifically implement the OECD Action Plan against BEPS. In view of the concrete proposal in respect of an automatic exchange of information it is above all important to determine, what kind of data will be subject to it and how this data will be used later. After all, the institutionalised communication between national authorities does not mean that tax loopholes will be actually closed. Apart from that, it has not been possible to agree any other specific targets apart from the exchange of information.
There is often a substantial discrepancy between G20 final declarations and their concrete pragmatic effects. After all, it was at the G20 summit 2009 in London, when the global end of bank secrecy and thereby of tax oases was announced - four years later and political reality has still not caught up with this intention. Hence, it remains in particular to be seen whether and how the global automatic exchange of information - as the only agreed maxim - will actually be implemented.
Further information:
OECD - BEPS
G20 Final Declaration